Published: Tuesday, April 23, 2013 at 11:03 AM.

A reform proposal, SB 1770, was delayed in the Legislature because of an outcry from consumer advocates and some homeowners. Opponents of the bill fear surging property insurance rates, especially in South Florida, if a reform of Citizens passes.

But the status quo is unacceptable. Citizens is a state agency designed to provide affordable property insurance to Floridians refused by other companies. Through the years, Citizens has expanded its rolls, making the agency vulnerable to massive claims if a big storm hits.

And here’s the big problem: Citizens wouldn’t be the only one on the hook.

Losses incurred after a storm are also paid for by policyholders who use private insurance companies. Citizens would charge these private policyholders “assessments” to make up for losses. Thus, Citizens is everybody’s problem.

While Citizens officials say they could handle a storm the size of 1992’s Hurricane Andrew, it’s less clear if the agency could handle a series of strong storms — like the ones that hit Florida in 2004 and 2005.

This problem is exacerbated because many Citizens customers pay below-market rates for coverage.

The solution to this problem requires some pain. New Citizens customers could see rates rise as high as 85 percent if the Senate bill passes.
These rates for new homeowners, more attuned to the market, could hurt the real estate market, opponents of SB 1770 claim.

Perhaps that’s true to some extent. But property insurance rates should reflect legitimate actuarial calculations, not political calculations. Citizens has distorted market rates and driven some private insurers out of state. And Florida customers of private insurance companies are essentially subsidizing the lifestyles of wealthier Citizens clients who live near the ocean and the Gulf of Mexico.

Calls for Citizens to be actuarially sound should not be controversial. But the longer reform is delayed, the more entrenched Citizens will become.

— The Daytona Beach News-Journal

Reader comments posted to this article may be published in our print edition. All rights reserved. This copyrighted material may not be re-published
without permission. Links are encouraged.

A reform proposal, SB 1770, was delayed in the Legislature because of an outcry from consumer advocates and some homeowners. Opponents of the bill fear surging property insurance rates, especially in South Florida, if a reform of Citizens passes.

But the status quo is unacceptable. Citizens is a state agency designed to provide affordable property insurance to Floridians refused by other companies. Through the years, Citizens has expanded its rolls, making the agency vulnerable to massive claims if a big storm hits.

And here’s the big problem: Citizens wouldn’t be the only one on the hook.

Losses incurred after a storm are also paid for by policyholders who use private insurance companies. Citizens would charge these private policyholders “assessments” to make up for losses. Thus, Citizens is everybody’s problem.

While Citizens officials say they could handle a storm the size of 1992’s Hurricane Andrew, it’s less clear if the agency could handle a series of strong storms — like the ones that hit Florida in 2004 and 2005.

This problem is exacerbated because many Citizens customers pay below-market rates for coverage.

The solution to this problem requires some pain. New Citizens customers could see rates rise as high as 85 percent if the Senate bill passes.
These rates for new homeowners, more attuned to the market, could hurt the real estate market, opponents of SB 1770 claim.

Perhaps that’s true to some extent. But property insurance rates should reflect legitimate actuarial calculations, not political calculations. Citizens has distorted market rates and driven some private insurers out of state. And Florida customers of private insurance companies are essentially subsidizing the lifestyles of wealthier Citizens clients who live near the ocean and the Gulf of Mexico.

Calls for Citizens to be actuarially sound should not be controversial. But the longer reform is delayed, the more entrenched Citizens will become.